Cost of Equity

Risk versus reward is a key determinant of investment activity. Cost of equity represents an investor’s evaluation of the risk that the enterprise is exposed to. We estimate that the GDP weighted cost of equity for the continent is 21.35% and has increased in the current year by 0.33%.

Most regions showed an increase in the cost of equity except Egypt and Sudan, which were the only countries to show a decrease. Egypt’s reduction in cost of equity is mostly driven by improved investor sentiment, which is driven by the investor related reforms, reduction in the central bank policy rate and the reduction of inflation towards the target inflation rate.

There are several driving forces for the increase in cost of equity for the different African regions. The overarching factor is the potential shift in investor sentiment away from emerging and frontier markets to safer developed markets. This shift tends to occur during global economic downturns.

Source: RisCura, Moody’s, BMI Research

^{*Note: The following countries are commonly excluded from the analysis due to insufficient data. When included, the impact is immaterial: Eritrea, Somalia. The zones in Western Sahara controlled by Sahrawi Arab Democratic Republic (SADR) are shown separately and the rest of the territory is shown as part of Morocco}

Source: RisCura, Moody’s, BMI Research
^{Note: The zones in Western Sahara controlled by Sahrawi Arab Democratic Republic (SADR) are shown separately and the rest of the territory is shown as part of Morocco}